March 29, 2012

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March 29, 2012

On March 29, 2012, the Treasury announced the pricing of the public offerings of TARP preferred stock in six banks. In aggregate, the Treasury took a 12% discount to move the TARP investments off the books of the Treasury, selling preferred stock with an aggregate liquidation value of $411 million for $362 million.

While Treasury took a loss on these six investments (at least partially because of Treasury’s desire to go ahead and move the investments rather than hold them for future payment), it is important to remember that the total TARP CPP portfolio has already returned a profit to taxpayers. Including the results of these auctions, Treasury has recovered $260 billion from repayments, dividends, interest and other income, compared to the $245 billion initially invested.

Details of each of the six auctions are provided below.

Banner Corporation, Walla Walla, WA – Auction proceeds of $108 million against an original investment of $124 million. The discount to the liquidation value of the shares was 11.5%.

First Financial Holdings Inc., Charleston, SC – Auction proceeds of $56 million against an original investment of $65 million. The discount to the liquidation value of the shares was 12.6%.

MainSource Financial Group, Inc., Greensburg, IN – Auction proceeds of $52 million against an original investment of $57 million. The discount to the liquidation value of the shares was 6.9%. MainSource had previously indicated that it intended to place one or more bids itself, and was ultimately successful in repurchasing 36.9% of its TARP preferred stock in the auction. Specifically, MainSource redeemed $21 million in liquidation value preferred stock for $19.6 million, and will still have approximately $36 million outstanding, now in the hands of private parties.

Seacoast Banking Corporation of Florida, Stuart, FL – Auction proceeds of $40 million against an original investment of $50 million. The discount to the liquidation value of the shares was 18.0%.

Wilshire Bancorp, Inc., Los Angeles, CA – Auction proceeds of $58 million against an original investment of $62 million. The discount to the liquidation value of the shares was 5.6%. Wilshire had previously indicated that it intended to place one or more bids itself, and was ultimately successful in repurchasing 96.5% of its TARP preferred stock in the auction. Specifically, Wilshire redeemed $60 million in liquidation value preferred stock for $56.6 million, and will still have approximately $2.2 million outstanding, now in the hands of private parties.

WSFS Financial Corporation, Wilmington, DE – Auction proceeds of $47 million against an original investment of $53 million. The discount to the liquidation value of the shares was 8.5%.

Each auction is expected to close on or about April 3, 2012, subject to customary closing conditions.

In each case, Treasury elected to sell its entire investment. Given the modified dutch auction structure, presumably Treasury could have elected to sell only a portion of its investment at a higher per share price, but apparently decided it was preferable to completely exit the TARP investments.

Institutions that had indicated that they were authorized and intended to bid on their own portfolios resulted in smaller discounts. MainSource and Wilshire sold for a weighted average discount of 6.2%, while the other four institutions sold for a weighted average discount of 12.4%. This relationship could be directly related to the institution’s respective bids, or may simply be indicative of the greater relative strength of these institutions. MainSource and Wilshire each generally had a lower NPA% and a higher tangible common to tangible asset ratios than the other four institutions.

As one would expect, Investors generally appear focused on both asset quality and capital ratios in assessing the value of the TARP investments. At 1.9% NPA’s and 8.95% tangible common equity, Wilshire has the smallest discount at 5.6%. At 2.8% NPA’s and 7.86% tangible common equity, MainSource experienced a discount of 6.9%. By comparison, a 9.5% tangible common equity ratio at Banner was apparently insufficient to overcome its 4% NPA ratio, resulting in a discount of 11.5%, while a 1.4% NPA ratio at First Financial was insufficient to overcome its 6.7% tangible common equity ratio, resulting in a discount of 12.6%. Seacoast generally was the most troubled of the six, with a 5.7% NPA ratio and a 5.6% tangible common equity ratio, which resulted in an 18.0% discount.

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